EU ministers in fresh push for bank failure rules

BRUSSELS — European Union finance ministers are making a fresh attempt to set up rules on who will pay for bank bailouts without letting taxpayers foot the bill.

Such a deal would be an important step forward in establishing Europe’s so-called banking union to restore financial and economic stability to the recession-hit bloc.

The EU’s 27 finance ministers were set to gather for what is likely to be a lengthy emergency meeting in Brussels late Wednesday after failing to reach an agreement in 19 hours of talks last week.

Germany’s finance chief Wolfgang Schaeuble told radio station Deutschlandfunk ahead of the talks that it was neither easy nor certain that an agreement could be reached, saying he hoped for “a result at a humanly bearable hour.”

Advertisement

But EU Commissioner Michel Barnier, who is in charge of banking reform at the bloc’s executive arm, sounded more upbeat, telling reporters in Brussels “an agreement is now within reach.”

He acknowledged, however, that there were still arduous negotiations ahead until a deal can be struck. “I can’t tell you whether that will be at midnight, at 2 am or at 3 am,” he said.

The ministers’ last-minute talks came only a day before a summit of the EU’s 27 heads of state and government that is expected to take stock of the progress of the bloc’s financial and economic policies.

A year ago, EU leaders pledged to tackle the eurozone’s financial crisis by introducing a banking union, which aims to give the supervision and rescue of banks to European institutions rather than leaving weaker member states to fend for themselves.

The rules under discussion on Wednesday seek to determine the order in which investors and creditors would have to pay to bail out a bank. Following the 2008-2009 financial crisis, countries like Ireland, Britain and Germany each had to pump dozens of billions of fresh capital into ailing banks to avoid the financial system from collapsing. To avoid that happening again, finance ministers are discussing who should contribute to a bank’s rescue so that ordinary taxpayers aren’t left with the bill.

A key stumbling block is who to hit hardest: Should it just be banks’ creditors and shareholders, or should small companies and ordinary savers holding uninsured deposits worth more than 100,000 euros ($132,000) also be included?

The new European rules would also establish a minimum level of funds — be it capital, bonds, or deposits — that banks must have on their books to ensure that there’s always enough privately held assets on which losses can be forced. This should shield taxpayers from the burden of propping up the bank. That level, according to diplomats, will likely be set at 8 percent of a bank’s total balance sheet.

Last week, the ministers fought bitterly over the complex set of regulations, with two issues proving highly divisive.

The first argument is whether the same rules should apply for the 17 EU countries sharing the euro currency and the ten members like Britain who have their own currency. The second controversy is about how much discretion should be granted to countries when it comes to restructuring or shutting down banks.

Some nations don’t want to be bound by rigid European rules. Others warned that too much flexibility would create new imbalances between the bloc’s weaker and stronger economies and a lack of common rules would destroy certainty for investors and erode trust in the financial system.

In the future, eurozone nations will be able to use the bloc’s 500 billion euro permanent bailout fund as a last resort to shore up their ailing banks. The non-euro countries, however, won’t have access to the funds and therefore ask for rules that give them more flexibility to design their own responses to bank failures.

Finance Minister Anders Borg of Sweden, which does not use the euro, said the current proposal was “too rigid.”

“We don’t want money from other EU countries but we do want to have the right to use our taxpayers’ money for our own banks,” he was quoted as telling German daily Die Welt. “Everything else would endanger the long-term stability of our banking sector.”

The new rules being discussed Wednesday will foresee the establishment of national bank restructuring funds, which will eventually be merged into a European resolution authority, one of the banking union’s three pillars.

Another part will be centralized oversight of big banks anchored at the European Central Bank due to be operational next year. But the discussion on the third section, a jointly guaranteed deposit insurance, is only in its early stages.